LOPE - Earnings call transcript Q2 2019 | Grand Canyon Education, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter Grand Canyon Education Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

At this time, I like to turn the call over to your host, Dan Bachus, CFO.

begin. may You

Dan Bachus

Thank you.

risks is that Please today results many forward-looking statements. that call Chairman CEO, will to today's factors or statements and Various implied from our of involve results be Mueller. materially on our any note Brian me contain could different Joining cause uncertainties. future actual expressed and our such comments by

in current Report reports our to on discussed during Form updates factors in SEC Form these recommend filings, GCE. we XX-Q, our provide on are all call, this undertake and XX-K, Form the We reports investors Annual on quarterly X-K. position made to no review reports These before including thoroughly and that forward-looking obligation statements regard with taking

I over call that, with to the turn will Brian. And

Brian Mueller

welcome Good Canyon Grand call. quarter Education's conference XXXX fiscal to afternoon. And year second

of X,XXX the universities XX.X% During enrollment XXXX. includes increase for the programs of Education June we XX, as at partner to provide which XXXX, second services, increased serviced by enrollments our This university Orbis quarter in in XX,XXX. programs

begin the grew I the students grew the been OPM and institutions comparable wish nothing in going our we enrollments partner them basis, low-teens in addressing by X.X%, but regarding best the issues XU. working adult They grew On New total year-over-year. to attending enrollment want the leaders in new a high-single-digits. have space and forward.

strategy why to is However, believe and about will GEC different I wasn’t be be the clear we we successful.

designed traditional in to University and on begin delivered way taking working this programs being throughout redesigning environment online Namely replicated to and expensive the teach a students. academic Grand is strategy students be Cannon been have least them the This Number the in strategy online adult operating face-to-face campus space. the quickest is one, to a that country. to

both has it and academic has comprehensive platform Cannon advantages. the very deliver space some Grand partners to most to and going services Education this GCU Although largest world’s is other significant in competitive, operational Number one, forward.

arrangements, revenue offer, will services as will that services, For many the OPM’s at don’t allow including programs over offered twice GCE offer but similar or same operational to be scale. very most

fully are assessment; be design; course reminder follow-ups; including services, learning and programming the schedules evaluation; intake, technical faculty practitioner comprehensive including and advertising to services, the the training space. system; management the include addition are counseling licensor in recruitment, curriculum services following: including These fully admissions automated scheduling; services, changed enrollment and services; financial that will academic developed automated and transcript built class common or offered calls; support. These or in services which aid

rates, GCE employment amounts, experienced graduation improving programs Number staff XX/XX space rates, biggest average GCU’s $XXX high the over outcomes. gainful million the XX,XXX platform Those formal this rates, on well and favorable low outcomes very player meeting as X,XXX include X, with cohort default students in a very serving members as is producing debt guidelines. good already low still

next of GCE small strain Adding point partners many and its very programs. looking for is will already into additional a a large The model proven important. lot of initial not partners on put financials. the operations is very with GCE minimum this new

over four three partners a want We to to that X,XXX approximately to or for scale are looking students period. X-year X

mix. based make partners geography, on to either differentiated are program that our want We brand, sure or

institutions, investors. and high programs points master’s price our We plus in want the good partner students, results to $XX,XXX will These factors avoid with partners for GCE, extremely resulting also and degrees. produce

to grow campus The going services Education very is Number GCU X, will build Grand is the Canyon to to at a Grand University’s out low asset. become GCU has its profits traditional very Canyon happening in tuition profitable, to to ground is rates, which growth has become providing campus. over next first students campus, traditional unique its and XX,XXX reinvest years. This continue

education. in has has competitive nine been been has the XXth unique best GCU transformative ranked is continues with the in invested programs colleges $X.X it high-quality with billion and into X enjoys XXX campus very GCU advantage students. the ground last in and academic and The built years to country. grow higher the out over campus

Number X, the very unique Orbis acquisition is asset. a second

into markets online ground need rest its for country There of the very the classroom is delivery. It located uniquely a produces involves graduates. value professionals and there significant positive the crowded strategic is space, a online laboratory for While proposition rushing and differentiated. combined is with the is Orbis infrastructure huge healthcare it GCU in

or GCU students two, expansion will partner XXXX. This to of and locations, the the two XX XX quarter year-end. rapid either to sign by to and of is Orbis. These of position bring new number the GCE three students. partners XX the expects a schools or programs, of Orbis University don’t had at other by close contract support under schools cannibalize in Orbis end partner either partner strong any total

new the who opening plan with of sites with XX X open Orbis’ with open of already the sites open, XX are partners to site new but students enrolling currently a XX sites. by between partners X and are originally partners new the their X have year-end. to we higher X that to X which sites represent expected In across is X day sites, projected. are sites who adding than news XXXX, possible who will we first additional three remaining Six sites

programs Orbis has currently This a still the OPM and unique relatively space space, represents new that and necessary the is XXXX. unlike rate in and is GCE strategy by achieve of differentiated summary, activity In more a that a XX% evolving than amount than education greater in growth any to enrolment serviced exists.

operations. results the to turning Now, of

purposes, an a basis the GCU, is will GCE minute. the As comparability include adjusted the of rather for we discussed technology our of amounts operations results service provider. in a Therefore, reminder, on as XXXX, reflect do operations operations as beginning X, University July but discuss not of a as

Additionally, Orbis' the for GCE XXXX in the in XXXX, University-related XX, entire the of second revenues Therefore, revenue million year. quarter. Orbis. the prior to completed Service the million results acquisition for of results of financial the on XXXX were quarter compared XXX.X second quarter January XXX.X includes

comparable XXXX, on of a enrolments in X, second GCU the service revenue as XXX.X XXXX. XXXX, transaction on between of basis. year-over-year January comparable second This the quarter GCU between due on revenue the XX, Had second our adjusted would The of Orbis increase and January to and occurred in years. increase primarily was increase XXXX, in comparable quarter acquisition fee GCE, of have quarter represents been an million XXXX, XX%

have on revenue. as agreements generates acquisition The our partnership partnership partners acquired of as Orbis rates so and agreements part higher higher of in take have per were these The student the these GCU GCU students per and nursing generally tuition that more higher are in semester. a of majority Science these than generally program, Orbis revenue with students credits accelerated Bachelor the average, studying

the XX.X% quarter-over-quarter of enrolment XX,XXX. from to increased XX,XXX End period

operating XXXX income and as adjusted margin were respectively. adjusted June months and As operating XX.X% XX, million, three for XX.X the ended

as educational our and continue that for create for XX.X million for GCE ended operating families. and were XX, infrastructure income to XX.X% operating will margin partner additional months adjusted create students and will institutions respectively, three XXXX the profits more As adjusted invest June to opportunities

and be second of technology XX.X in Orbis XX.X and from facilities, services or attributable million which quarter quarter the requires million academic second academic to headcount, partner. University including XX.X increase increase an provided acquisition, of XXXX to certain to million XXX%. acquired was in Technology the equipment the each partner XXXX, This classroom agreements primarily grew of in to and services,

with increase. These costs enrolment the to increased clients, service increased our along GCU's in resulted cost the existing

comparable costs partner increased points the of academic XXX than X.X%, As a agreements primarily agreement with and to XX.X% to requiring partner basis from a GCU. services percent technology our higher due these of acquired level revenue,

from support partner Orbis million quarter and This million X.X%. attributable to in support, the increase to of principally the be partner. XXXX increase quarter Counselling second was which services acquisition, X.X to each counselling of XX.X or provided agreements certain second in and acquired the XX.X in grew an XXXX, requires to primarily million headcount services University of expenses

cost resulted with in increase. along to increased enrolment University our primary costs the GCU's partner, service increased the These

from the due the accounts acquired service a base. As costs XXX points XX.X% being and decreased to to to basis services ability and agreements these cost due primarily revenue And the our cost to as an comparable XX.X%, revenue, revenue of partner service support a across percentage in GCU. our increasing leverage to support and of less expenses services counselling percentage to

partners University a associated the communication XXXX to is primarily revenue Marketing with QX, points XX of from to increased comparable and increase XXXX. cost advertising This our QX, marketing basis new due expenses as percent programs.

comparable expenses depreciation administrative and basis XXXX. between X.X due percentage benefit in was years, years revenue employee million This XXX to as and QX, primarily XXXX and in QX, points in professional X.X% occupancy legal a and including administrative to and between and increases other in audit General increased increase in from expenses and cost fees, compensation increased X.X% of expenses.

and the in administrative including and headcount Our compensation, office and occupancy space Indiana. employee primarily and related additional are in increases acquisition, costs to depreciation, general other

the it provide our other With more as Bachus, give income quarter, and guidance. XXXX talk would XXXX to to as on items, turn to sheet, that, balance over second like CFO Dan in color changes little a I well to our statement, about

Dan Bachus

Brian. second expense and the included in for XXXX diluted and amount acquired and X-K Orbis of XX, assets with The The income amounts million. non-GAAP intangible Included the share assets non-GAAP on intangible the ended months the amortization our Thanks exclude amounts income totaled of statement. income June X.X of our filed SEC million included the in we three acquisition XXX.X non-GAAP amortization amortizable consolidated loss was Form transaction the tax in per quarter in net have effected the XXXX.

of allows the time. develop a non-GAAP the over meaningful We company's believe more financial performance understanding investors information to

for of in per As the XXXX, due is non-GAAP share $X.X. income XX, the expectations revenue quarter to three our second exceeded adjusted, XXXX revenue slightly per months ended Service diluted June student. higher

with were in a enrolments Included expectations. other gain $X.XX resulted one-time our Orbis the and of fee. in X.X investment and of GCU is This interest generally million. earnings in-line

with Our effective million and to compared recent taxes tax than benefits Arizona the the quarter in rate in a second QX, than law XXXX state XX.X% XXXX in from of lower our change of tax guidance QX, to effective XX.X%, X.X is quarter higher tax million and expected for to rate XX.X%, but respect expected was due XXXX, excess XXXX. to X.X second

million the lower of million XX,XXX available another under and expected and shares our than XX.X beat. repurchased common as XX, earnings $X.XX the of X.X of of XXXX. of repurchase in X.X a quarter We share at the stock tax million July. June resulted our authorization The XXXX, second in X,XXX of rate shares We cost in had cost

second Turning and XXXX the to XXX,XXX June were unrestricted sheet cash were advancements cash XXXX and million. balance the cash total XX XX, and equivalents cash of Restricted XX, a June Orbis as at new and short-term for flows, CapEx for net represents lease pledged of partner sites or X.X CapEx newly site. quarter million collateral X.X% XXXX, including GCE revenue. approximately in acquired the was

to which XXX.X funded note second capital through the of million expenditures GCE's XXXX, We million, an build CapEx should behalf of of through end partner GCU of advance the estimated million XX and location. of believe XX and in XXXX out the development for quarter that consisting We approximately million of Orbis of secured the continue software CapEx XXXX. range primarily includes XX on between

to months apartment-style may in for year. XXXX-XXXX XXXX This parking amounts XXXX, year repaid additional XX, funding the building, the to garage three six project the year for and ended XXXX. residence school during school build remaining and December the halls, cost classroom a finish Some the initial be is a

University us GCU, continues CapEx year anticipates request will likely recent continue its fund own to as CapEx the be on moving be Based to conversations to forward. they its University the it after able that to this with not will fund

non-GAAP, on provided as diluted have on the loss The and of intangible share income guidance have adjusted the I to as XXXX. color rest adjusted be for would of income amortization the net as guidance to acquired that like per provided we continues transaction. exclude provide we assets we Last, in

revenue We the for due to increased second quarter full-year have guidance beat. the

in Orbis and half increased fourth quarter but the same for We be guidance adjusted as slightly the amount predicted revenue less the the revenue initially revenue than dates. XXXX, by in third start fourth differences second in cohort of not for the have lowered primarily quarter, timing will it the the third due but quarter, quarter to than have higher

lieu spend the to the fourth quarter to in second the second, the margin made XX.X% contribution for assumptions raised third the it the in revenue expense All discuss year. the site state due of have from quarter and quarter of income higher shift the for lowered I’ll remain due effect in the and Excluding Orbis to Orbis XX.X% slightly taxes operating that fourth new in projected other half the will openings. on of same we

made in expenses of This the state X million which third million of In lieu this X is taxes, of and lower and quarter. quarter, tax of increasing state of the July, along a has amount XX.X% G&A quarters contributions third us administrative as in expense in decreasing tax quarter of tax and or three XX.X% QX expense we benefit is effect revising estimates million year income and the excess as is our expense. with in entire The X the or revised recorded result X while a in made rates tax fourth million recorded our in QX. general effective income included income tax in state quarter income lower in

borrowings rest We XX.X borrowings half in million the but of took might interest some additional on second million revised and will quarters our assumptions the June, of take based income for and net and the that the have be our in made. be there’s We place place projections for that repayments project interest third income also respectively. of net fourth year XXXX, XXXX XX.X no will

these assume other not repurchases might estimates made today. repurchase during do shares than those XXXX, we additional Although

so turn I to will can answer we the now moderator, call questions. the over

Operator

Thank BMO first from show our I ahead. Silber you, Capital sir. Jeff [Operator Instructions] question comes Please from Markets. go

Jeff Silber

start to Orbis. Wanted much. with so you Thank

some seem have than expectations, You’ve faster it been you your than growing you gone I’m to good does might numbers what since has in just really company. those purchased up curious putting programs better why thought? be the

Dan Bachus

of would have given confidence whole that partners a I the the initial the say lot success levels organization. of to

have meeting and larger want with but making wants not the rounds additional to locations. universities, every only location We been of to amounts, and their build the institution some single they current

starting end if really hitting the about happen it confidence the are when and they are And a levels were – to buy time The people so are and the are results consistently their at so, we of growing model consistently collect turn expansion. numbers, they to excited high corner. enrolment and very

Jeff Silber

update to great curious any on on gave I your timing overall terms services appreciate the hear. or of from you That’s any managed the I’m color announcements OPM Okay. market, new just in is partnerships there of potential perspective? any

Dan Bachus

Yes.

are working hard. We

the on on road for we’re two week partners, now all for meetings you months going we're three. potential be, which additional with will and have road the We been know with next back down road the three

those Some of as many the partner meetings will as from XXX include people institutions.

bit the do because or program And we longer we little to a a but think with prove XXX industry, it's are it is off picking long this and of students a process not kind traditionally so, looking I it’s XXX OPM can done well students students. XXX in this on been are, way we

are an it. or really infrastructure four their institutions behind I behind is about looking it. President three excited like And and and for said, We academic is who’s who wholeheartedly it, behind this entire has institution,

nice, Grand Grand are the that – of So, that Canyon but running higher change results fundamentally not education. Canyon structure we that Education produce we economic when ground that can hit don't has really anything. and really not altered University

University’s student. going here students under for in room University average than are average fees the our less tuition Private – country. student traditional on board State campus Probably now Our two-thirds this our room average, board on

And it in significant five-year it’s or sense. will won't to effect, University dramatic over so, X,XXX can institution it seven-year – find as a had will X,XXX a Private probably and be between right but to have on transformative we going that it scale ours, have and partners period, it in to the their the on to be Midwest a if time Northeast and want effect X,XXX a

just small And the that place the partners for working is fall. that starting towards is of and entire the couple an taking before in longer, have think we’ve why making but next, programs in versus end sure little a institution the we in year we a got students so, will it start certain

Jeff Silber

the I Okay. one could appreciate color. If just I sneak more in.

Title Over institution has potentially few of enrolments financial because and this the do been changes their the past authorization getting there state. upcoming next in this rules but you residents to weeks, on out Hopefully, there to impact any or some of from in state to resolved, non-profit go California few noise for aid market your about IV was limiting online has so been issue? think their quarters an the

Dan Bachus

No.

be We fine. will

Jeff Silber

Alright, Alright. you back That’s hear. queue. the get I’ll much. good so Thank in to

Operator

Thank you.

comes Baird. question from Please next Our from Jeff Meuler go ahead.

Jeff Meuler

that I timing P&L the guidance. terms taxes. for for around the want in income thanks is of of detailed factors lot moving with make Dan, geography to I move and it right there just a because contribution have sure the big on

only I of QX upside previously of underlying opening underlying, only then So, here real movement? incremental in I other and you’re a number underlying if a contemplated, are like-for-like little changes timing the given adjust And timing expense Orbis that bit two for greater terms for locations those the just, QX? movement, the from of the that than in flowing P&L than changes the in are

Dan Bachus

Yes.

on it the hit You’ve head.

the net out. the the The expenses nets slightly revenue in Orbis little we’re income quarter expenses, Everything a with all out. additional lower on for basis. outs fourth interest a effective basically slightly we’ll in expense shift the tax and making and than We Orbis, up rate higher fourth that combined are and other higher to bit slightly is – other have else nets quarter related

So, correct. what is you said exactly

Jeff Meuler

could you margin Orbis Okay. at there launches, is sign if look up then and are X your like? framework would there XXXX all sort is is of do plus you potentially you do what, on to would provide? potentially of Brian Just like once, three stepping margin there OPMs the any And partnerships pace that can interest implications framework you intermediate-term part them OPM any thinking for like

Brian Mueller

three I don't sign the would we that same time. think at

the we do starting time, to we be I actually wouldn't – students likely will reasonable amount XX if in two days, within that is it the and the we but probably think next until a XX sign of that fall.

would it there but financials. expense so, that success have extreme And be be amount of incurred, would some material would be would impact on that an hugely the

Dan Bachus

is factor the The there want partner wants lot biggest is, are? telling is scale? I coming upfront that significantly material only would add How I resolved. So, on fast agreement how they them things of to how before that to the that to mentioned be the component. critical think how still a GCE thing is, a fast scale We’ve have expenses in or to

So, have on detail a then you we we the a partner as lot give side. be impact more and as in finalized, those the revenue have on to both but expense on place, will side, we able will soon the plans have it

Jeff Meuler

saying could are these seeing starting And, XXXX programs students fall are you you at have you fall XXXX? or

Dan Bachus

a we’re students not after bunch expense like that’s we for days, start might XXXX. But wouldn't be first of we're XX For but XX why we that. – the X XX agreement months in sign going throwing an in to the that's no. not days, next or That’s

Jeff Meuler

Okay. That’s helpful.

Brian Mueller

be could it XXXX. even And don't till of January programs out roll those

think is of So, XXXX I as or spring fall … as early XXXX,

Dan Bachus

the is earliest. XXXX Fall

Jeff Meuler

state or The is then original where question. in to all thinking shape, off be a California GCE there not you I'm in the accommodate but future would University And saying so, like it. not if boxes, if maybe California of good lived? even the Even down so reciprocity sort of Ed are ruling was stop be were it the gap kind plan court this, I about the be period did California around the far given financing proposal, like they the some just continues sounds going something. or did you did so to as go have students it the short of in noise take not the a there if to IV, – would Title guess it or would judge or [indiscernible], Got follow-up that other and Jeff's chime for eligible there that if path just

Brian Mueller

for students the What GCE told it add. new they of continue And to students would that students is by do in terms retain was thing GCU the and the enrolling it that State disbursed. the the balance on the conclusion Department to would on of reasonable California sheet risk the Ed of and aid be took this, own would its financial come and a right

so I no assume other happens impact a no occur. than why there if on And that in cash GCU impact And that's short-term frankly would GCE was GCU. the there on is impact really on future, something would and same the

Jeff Meuler

Thank Helpful. you.

Dan Bachus

We end quarter your We conference call. Canyon second interest of have in Grand reached time appreciate the and Education. our

Dan still Bachus. contact myself, have please you questions Thank very much. you If

Operator

Thank and the conference. today's attending program. you, gentlemen for concludes This ladies

all may Good disconnect. You day.

Grand Canyon Education (LOPE) 6 Aug 192019 Q2 Earnings call transcript